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Climate risks are larger than clean energy transition anxieties

To act or not to act? Climate risks are outstripping clean energy transition anxieties for major corporations.

climate risk

Top corporate energy consumers increasingly see the real risk is being caught flat-footed in a moment of energy transformation. Image via Shutterstock/Dilok Klaisataporn

This article was adapted from Energy Weekly, a free newsletter about the clean energy transition.

It’s hard for a company to be a clean energy trailblazer. The upfront costs of renewables can be more expensive than their dirty counterparts, contract models are young and complex, and if anything goes wrong, the internal champion working on the initiative will likely be blamed. 

So it makes sense that the companies that are out front on clean energy initiatives are those that have staked their reputation in figuring out tough challenges and have profit margins to play with — think tech giants such as Microsoft, Google, Amazon and Meta. 

This week, I’ve been rubbing shoulders (in person!) with energy companies and major corporate customers at the Edison Electric Institute (EEI) key accounts workshop in New Orleans. It’s a spot for energy providers and offtakers to connect about the issues and challenges that are top of mind; what I’ve seen and heard reflects a changing mindset around clean energy. 

While traditionally trying something new was seen as a risk, today top corporate energy consumers increasingly see the real risk is being caught flat-footed in a moment of energy transformation. The status quo now seems to be innovation. 

Risk of price volatility 

The global energy crises of the last few months, exacerbated in the last month by the war in Ukraine, has underscored how energy markets are at the mercy of geopolitics. 

Companies with exposure in Europe are experiencing the increase in energy costs, and while the United States produces natural gas and has been more isolated, increases in costs could be on the horizon, depending on the quantity of future exports. And, of course, gasoline prices are high, affecting companies that are managing vehicles with internal combustion engines. 

All of this puts corporations in a spot they hate: subject to market volatility. 

On the policy side, dirty energy projects may become more expensive. The Biden administration continues to move forward a policy that would put a social cost of carbon in rulemaking and assessing projects. The Securities Exchange Commission also just released a draft rule on climate disclosure, requiring publicly traded companies to provide emissions disclosures, climate goals and risk assessments. While these policies are still in the works, they indicate more price uncertainty. 

Corporate energy buyers like cost certainty and would like off this roller coaster. 

Renewable virtual power purchase agreements are already used as a financial hedge for corporations. The volatility of prices throughout the energy markets are inspiring traditional energy offtakers to look towards resources where the marginal cost of fuel is essentially zero (thanks, sun and wind!). And utilities are looking be the ones to offer these options to their customers, competing on new solutions. 

The risk of extreme weather

You don’t need to believe in climate change to see the real impact of extreme weather on business operations and the grid. Ironically, as I was writing these words from a hotel room in New Orleans, I received a tornado warning on my phone — a type of natural disaster that is becoming more frequent and more intense.

Energy resilience is becoming a top concern for corporations as they reckon with the costs of business disruption due to power outages. Quantifying the cost of outages is complicated, and organizations are still figuring out how to put a price tag on inputs such as loss of services, food spoilage and reputational impacts. Increasingly, the cost of taking action is recognized as cheaper compared to the risks of getting caught flat-footed. 

In the three-legged stool of energy priorities — affordability, reliability and sustainability — reliability is becoming the dominant leg. Not because it’s more important than it used to be, but because the grid is becoming less reliable. The U.S. saw a 73 percent increase in power outages in 2020, a trend that has generally been on the upswing. 

Companies and energy providers are increasingly seeing those three legs as interconnected, too. It’s expensive to lose power; companies want continuity in energy and continuity of costs. 

This priority is reflected in the products top electric companies and service providers are offering. Utilities are getting onboard with hyper-resilience options for their customers, providing backup technologies and behind-the-meter assets, like on-site renewables, microgrids and battery back-ups. To use utility lingo, customers want "five nines" — meaning they expect reliability 99.999 percent of the time. 

Of course, resilience and clean energy are not synonymous, and many solutions folks are thinking about include natural gas fuel-cell technology. But the orientation is overwhelmingly to move away from those dirty solutions and look towards technologies that will help meet net-zero goals while ensuring energy and continuity. 

Reputational risk 

Large companies are getting the memo that sustainability is important to customers. More than 90 percent of Fortune 500 companies report on sustainability, and about 45 percent have net-zero goals

Regardless of how far companies are on their path to net zero (a recent report found most companies are flunking their net-zero commitments), it’s clear that not acting could cost companies customers. A recent study found one-third of U.S. companies have lost business over sustainability practices, a so-called apathy tax. 

At the same time, many companies don’t want to pay a premium for decarbonization, especially those that run on thin profit margins. As a result, corporate energy buyers are turning to energy providers to find easy solutions to decarbonize operations — through efficiency or clean energy procurements. 

Utilities, many of which are also facing pressure within the states they operate in the form of renewable portfolio standards, are responding to this motivation, finding ways to incorporate more clean energy solutions into their suite of services. 

This is rather incredible. Utilities are famously slow to evolve, facing a patchwork of regulations from states and national governments that makes it difficult and risky to change quickly. Companies are accelerating this transformation, just by communicating their internal climate goals and forcing providers to compete on solutions.

Of course, none of it is happening fast enough. The clean energy transition is underway, but the climate gap is accelerating quickly. While it’s heartening to see decarbonization become central to old-school energy players, policy, public pressure and increased ambitions will all be necessary if this transformation stands a chance of meeting the scale of the problem. 

Still, when an industry event sounds like a climate event, it’s a reminder that sustainability is becoming mainstream — exactly where it should be.

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